European Central Bank is fighting fires on all fronts

by Nils Pratley

Guardian
August 18, 2011

Let's face it, another drop in investor confidence and another lurch downwards in stock markets, had been coming. The contributors were important: a weak report from US manufacturers; a quarrel between eurozone members over collateral to be used in the Greek bailout; and a warning from Morgan Stanley that the world is veering dangerously close to recession. But these worries are all underpinned by the sense that policymakers still haven't grasped the severity of the crisis.

The big fightback on Tuesday by German chancellor Angela Merkel and French president Nicolas Sarkozy was presented as a major shift in thinking. In one sense it was – a new "economic government" for Europe, imposing budget disciplines on member states, sounds terribly important (if other countries agree to sign up: no guarantees there). But it would have been more useful 10 years ago, before the debts were racked up and before southern Europe became uncompetitive with the north.

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